’Bankers Gone Wild 2’ may revive reform

Jamie Dimon, boss of JPMorgan Chase, reputedly the world’s best banker, and recent scourge of Dodd-Frank regulatory reform, has been sorely embarrassed by the massive misadventures of a Chase London trading unit. Dimon’s anti-regulatory forays are crotchety and scornful, insisting that professional traders know how to manage risk, and that a thicker regulatory blanket will only hurt profits, stifle innovation and delay economic recovery.

But now JPM’s hyper-aggressive trading has caused a loss somewhere north of $2 billion, and possibly as much as $5 billion. The episode not only confirms the wisdom of the “Volcker rule” prohibiting commercial banks from risking depositor money in speculative trading, it also raises more fundamental questions about the current role and conduct of the megabanks.

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We still don’t know precisely what the Morgan traders were up to, and the bank seems determined to withhold the details as long as possible. Hedge funds have been ripping big bloody chunks from Morgan’s hindquarters for some days now, and more details will only illuminate the path to the belly. The hedged positions may be as much as $100 billion, so a focused feeding frenzy could do a lot of damage.

The little we know suggests that Morgan was positioning itself to avoid near-term losses on unspecified portfolios of investment grade but relatively risky, bonds. To protect itself, it took a short position on a liquid index of similar bonds. The thinking was that if the portfolio bonds fell in value, the profits from betting against the indexes would offset much of the losses. Even under the Volcker rule, such a transaction might well qualify as a legitimate hedge, rather than the kind of speculative positioning the rule is designed to stop.

But these Morgan traders went further. Since their longer-term outlook was less dire, they took a long position on the same indexes further out in the future, possibly in the hope of recovering their costs on the short. (That probably wouldn’t qualify under a final Volcker rule.)

The trade worked out very well — at first. As time went on, the traders increased their long-term bet by quite a lot — so much that one of the traders, Bruno Iksil, became known as the “The London Whale.” By so much, indeed, that major bond indexes started showing seriously deranged prices. The Whale was quickly surrounded by orcas — zooming in to take the opposite side.

Dimon first called all this a “tempest in a teapot” but then took a careful look and saw it was a mess. Heads rolled, apologies were made and for the moment Morgan seems to be incurring further losses rather than sell into a feeding frenzy.

This is obviously just the sort of fiasco that the Volcker rule, which regulators are now putting into final shape, was designed to prevent. Hedge funds, private-equity funds and Warren Buffett, can bet on anything they want. If they make too many bad bets, they fail.

A federally insured depositary bank, however, should not be able to take whatever risks its managers find alluring. As we saw in 2008, when they mess up big time, the rest of us bear the brunt.

It's not only dumb, it's pure greed and corruption. Congress is in bed with the banks and does not want regulations. This is ridiculous and the inept and corrupt congress should be doing something about it. They won't be happy until this country is brought to its knees and destroyed. The problem is the innocent will be destroyed rather than the robber barons. They should never have been bailed out without strict regulations. Besides they are too big....break them up.

FDIC deposits should be under strict regulation. Period. That is not a conservative/liberal issue. Banks can play all they want with uninsured funds (in return for higher interest rates for depositors).

We seem to confuse public and private money. If Uncle Sam puts up the money (Health care, defense spending, farm subsidies, education, FDIC, HUD) then he makes the rules. If Uncle Sam doesn't have skin in the game, then he largely stays out of the way. (The Davis Rule of Public/Private Investment).

LOL, back before consumer loans and fancy credit default swaps, Merchant Bankers had bills of exchange which were contracts that governed the exchange of commodities.

In 1763, the Prussian War had just ended, and the banks had made fortunes in grain and sugar contracts. There was so much money to be made during the war on sugar and grain that most of the banks continually rolled over their contracts and amassed larger and larger positions in grain and sugar generating more and more profit.

When the war ended, however, the Russian Army no longer needed the huge store of grain they were carrying and sold off their grain to Amsterdam Merchant Bankers for one million guilders.

Grain prices began to collapse, and as they collapsed, merchant bankers tried to sell more grain to raise funds to close out their positions causing grain prices to collapse faster.

Banks failed in Amsterdam, then in Hamburg and Berlin. The entire region of Northern Europe suffered a depression follwed by a stagnation that lasted from 1763 to 1788,

25 Years!

Keep in mind, contracts were short-term (7 days at most) and had to be settled quickly, so there was a limit to how leveraged a position could really be in 1763 by the very nature of the underlying contracts.

Now we have 30 year loans, 5-10 year swap contracts and even indexes on those underlying swaps which are based on 15-30 year londs, or 5-20 year corporate debt, and capitalization requirements are much less. It's conservative now to lever up only 90% (10 percent capitalizaation).

If you say we won't bail out banks, you're just lying to yourself. We'll bail them out in the end.

There ought to be a penalty-in my opinion--so the guys who allowed the bank to fail aren't rewarded (same for their stock holders and bond holders), but we aren't going to let many banks fail, and we aren't going to let any large banks fail because a 20 year depression and 50% unemployment is out of the question.

We could have Nationalized the banks, and then spun them off later, but... we were worried about trillions of dollars of possiblle swap contracts suddenly becoming worthless and taking out even more hedge funds, banks, and your retirment account along the way.

LOL, back before consumer loans and fancy credit default swaps, Merchant Bankers had bills of exchange which were contracts that governed the exchange of commodities.

In 1763, the Prussian War had just ended, and the banks had made fortunes in grain and sugar contracts. There was so much money to be made during the war on sugar and grain that most of the banks continually rolled over their contracts and amassed larger and larger positions in grain and sugar generating more and more profit.

When the war ended, however, the Russian Army no longer needed the huge store of grain they were carrying and sold off their grain to Amsterdam Merchant Bankers for one million guilders.

Grain prices began to collapse, and as they collapsed, merchant bankers tried to sell more grain to raise funds to close out their positions causing grain prices to collapse faster.

Banks failed in Amsterdam, then in Hamburg and Berlin. The entire region of Northern Europe suffered a depression follwed by a stagnation that lasted from 1763 to 1788,

25 Years!

Keep in mind, contracts were short-term (7 days at most) and had to be settled quickly, so there was a limit to how leveraged a position could really be in 1763 by the very nature of the underlying contracts.

Now we have 30 year loans, 5-10 year swap contracts and even indexes on those underlying swaps which are based on 15-30 year londs, or 5-20 year corporate debt, and capitalization requirements are much less. It's conservative now to lever up only 90% (10 percent capitalizaation).

If you say we won't bail out banks, you're just lying to yourself. We'll bail them out in the end. There ought to be a penalty so the guys who allowed the bank to fail aren't rewarded (same for their stock holders and bond holders), but we aren't going to let many banks fail, and we aren't going to let any large banks fail because a 20 year depression and 50% unemployment is out of the question.

I find it odd that you cite the repeal of Glass-Steagall as on of the major factors leading to the 2008 meltdown, but, instead of calling for its return, you argue that the JP Morgan fiasco proves the necessity of the Volcker rule. The Volcker rule is not Glass-Steagall. Glass-Steagall forcibly separated commercial banking from investment banking. They couldn't even be under the same roof, much less mix money between them. The Volcker rule was written into Dodd-Frank in order to block the return of Glass-Steagall, which had been introduced into the Senate by McCain and others, but was never voted on. The only answer here is Glass-Steagall. Better to let JPMorgan, Goldman Sachs, the hedge funds and all the other vultures out there die from their own bad bets than to bail them out and kill the rest of us as a reuslt.

Glass Steagall is the simple answer to stopping our guaranteeing the big banks bets in world banking casino derivatives. Politicians doing the bidding of the world banking cartel is a curse on American citizens.

This is the age of liars and cheats. In sports, steroids brings big money to cheaters, in politics the consummate Liar lands the highest office in the land.

In the money world, the big are always supposed to win. People forget: JP Morgan’s loss was someone else’s gain --- If the Big Boys are losing in the bottom of the ninth its no longer three outs but 5, 8 however many it takes to win before: game over!

Life has given you all you want. If you are not religious you are not happy, if you have everything you think and you are not satisfied you are still poor Besides the larger realization among Millennials – and many economists – that between automation and outsourcing, good job opportunities are scarce, younger adults are moving back into their parent’s house because they’re broke. According to the U.S. Census Bureau, 5.9 million young adults between the ages of 25 and 34 lived with their parents by 2011, up from 4.7 million in 2008. The agency also says that 45% of those “double-upper’s” generate incomes that are below the poverty lines. But the capper on the jug could be a new report from Fort Worth, Texas-basedThink Finance, an online financial products provider. The survey of 640 U.S. Millennials reveals that more of them are using purportedly downscale financial products like pre-paid credit cards and pay day loans – and are actually ‘satisfied” with the experience. What’s particularly newsworthy is that the younger set may be establishing new norms for future generations of U.S. financial consumers. Think Finance says Millennials across most income spectrums have turned to what the firm calls “alternative financial services”, and that they use “emergency forms of cash” and consider those alternatives “an important financial tool”. OK, does that mean that formerly frowned upon financial products like payday loans and pawn shops have risen in stature, or does it mean that Millennials are faring so poorly these days that they have to take a path their parents never took – and do so out of financial necessity? Think Finance says that such products are a sign of the times, and offer young consumers good value and service. “Stereotypes that paint users of alternative financial products as poor and uninformed are simply not accurate,” says Ken Rees, CEO of Think Finance. “This study confirms that young people across the spectrum have a need for the convenience, utility and flexibility that alternative financial services provide.” The survey seems to confirm that sentiment. Sixty-two percent of respondents say emergency cash services are “important”. And 83% said they actually had a decent experience using things like prepaid cards and check-cashing services. Here are some other takeaways from the study I thank you Firozali A.Mulla DBA

We have unable to see news to cheer us up for quite some months. This only tells us how the doctors make money out of us. More losses higher BP, more sleeping pills more diagnoses more fee. Where will all lead? More pills? I think so. Doubts that European Union leaders will come even close to cobbling together a plan to kick-start the region's faltering economy sent world stock markets lower Wednesday. Leaders of the 27 EU countries are to meet in Brussels later in the day for a summit expected to deal with Europe's economic woes but also ways to prevent debt-mired Greece from skidding into a chaotic bankruptcy. A failure to make headway risks jolting stock markets further, analysts said. ``Unless there are dramatic developments at today's summit, risk assets are set to continue to remain under pressure,'' analysts at Credit Agricole CIB in Hong Kong said in an email. Britain's FTSE 100 opened 1.5 percent lower at 5,321.30. Germany's DAX lost 1.6 percent to 6,336.22 and France's CAC-40 fell 1.4 percent to 3,041.43. Wall Street headed for another day of losses, with Dow Jones industrial futures down 0.5 percent to 12,410 and S&P 500 futures 0.6 percent lower at 1,306.50. Investors have long acknowledged the possibility of a Greek withdrawal from the 17-nation euro currency union as the country struggles to meet harsh austerity targets that are a condition of getting international bailout money. But a financial news service's report, which quoted former Greek Prime Minister Lucas Papademos suggesting such a euro exit could be approaching, flustered Asian markets earlier in the day. ``I think investors now are concerned that Greece may finally leave the euro currency union,'' said Dickie Wong of Kingston Securities Ltd. in Hong Kong. Another big worry for investors is a slowdown in Chinese growth, compounded by a reluctance of Chinese companies to borrow because of uncertainty about the economy. Japan's Nikkei 225 index tumbled 2 percent to close at 8,556.60. The Bank of Japan on Wednesday left its key interest rate unchanged at near zero as widely expected. Hong Kong's Hang Seng fell 1.3 percent to 18,786.19 and South Korea's Kospi lost 1.1 percent at 1,808.62. Australia's S&P/ASX 200 lost 1.3 percent to 4,067. Falling oil and metal prices hurt commodity shares. Energy Resources of Australia fell 2 percent. China National Offshore Oil Corp. lost 1 percent. Aluminum Corp. of China lost 2.7 percent. Asian companies deriving significant sales revenue from exports slumped a day after the Organization for Economic Cooperation and Development warned that euro countries are at risk of falling into a ``severe recession.'' Every increased possession loads us with new weariness. -John Ruskin, author, art critic, and social reformer (1819-1900) I thank you Firozali A.Mulla DBA